Chinese Import Tariffs are a Bad Idea

I just got back from a vacation and during that time I got to do something I love – read all sorts of intellectually stimulating stuff. It re-affirmed some simple knowledge: I love the Economist…

One of the most interesting stories I read was one I hadn’t been following at all prior to my trip. Covered in both The Economist and The Atlantic the issue of Chinese import tariffs grabbed my attention.

Basically, there is popular support in the US for protectionism that would tax Chinese imports, and hopefully restore some American manufacturing jobs. A bill has been created suggesting that we tax imports based on the Chinese currency being artificially undervalued to give Chinese imports unfair advantage (which is very true, but probably not as egregiously as proponents of this bill claim).

At the heart of this issue is whether global competition is good or bad. The Economist killed it with their coverage; Who’s afraid of the dragon?

What’s most interesting, is that there’s finally some data about the benefits of global competition, which previously has been pretty rare.

In a more standard exploration, economists tried to study the costs associated with foreign competition. What they found was meaningful; 0.77% lower employment per $1000 of import exposure per worker. That’s big, especially in the most affected areas (several percentage points lower employment).

However, Nicholas Bloom, Mirko Draka, and John Van Reenen tried to study the benefit that countries got from foreign competition and came up with some fascinating stats. For every 10% rise in Chinese imports in a firms industry, there was: a 3.2% increase in patent filing, a 3.6% increase in IT spending, and a 12% increase in R&D. 

While competition is eating the low end of the market, it’s forcing innovation from incumbents (read: a good thing).

As a nation, we should be accepting this challenge, and fighting to innovate more and shift more of our workforce to knowledge work.

Image courtesy of Shutterstock.